Free Tool — Section 199A / QBI
Are you claiming the 20% pass-through deduction?
Section 199A lets pass-through business owners deduct up to 20% of their net business income — but physician practices phase out above income thresholds, and most owners don't know where they stand. Get your eligibility estimate in 90 seconds.
The QBI deduction for healthcare, answered
Why healthcare is treated differently from most businesses under Section 199A, and what that means above the income thresholds.
Do physicians and dentists qualify for the QBI deduction?
Sometimes — it depends on taxable income. Health is one of the fields specifically named as a specified service trade or business under Section 199A, which means the deduction phases out as taxable income rises through a threshold range and is generally unavailable above it. Below the threshold, a healthcare practice owner is treated like any other business owner and the specified-service classification does not bite. The thresholds are indexed for inflation and change annually.
What is a specified service trade or business?
A category in Section 199A covering fields including health, law, accounting, consulting, athletics, financial services, and any trade or business whose principal asset is the reputation or skill of its employees or owners. Being in one of these fields does not eliminate the deduction outright — it subjects it to an income-based phase-out that non-specified businesses do not face.
Can a practice avoid specified-service status by changing entity type?
No. The classification follows the nature of the activity, not the legal form, so an S-corp, a partnership, and a sole proprietorship performing the same clinical services are treated the same way. Structures marketed as separating out a non-specified piece of a practice can raise substantive questions under the anti-abuse rules, and are worth reviewing carefully with your CPA before relying on them.
What about non-clinical income — real estate, ancillary services, or equipment?
A genuinely separate trade or business can be analyzed on its own terms, and some ancillary activities are not specified services. Whether an activity is genuinely separate is a facts question involving common ownership, shared services, and how the activities are actually conducted, and the rules limit separating a small non-specified piece out of a specified business. This is one of the more fact-sensitive areas of Section 199A and is not a place for a rule of thumb.
How does owner salary interact with the QBI deduction?
W-2 wages paid by the business affect the deduction through a wage limitation that applies above the threshold range, so compensation decisions and the QBI calculation are connected rather than independent. For a specified service business phasing out, the interaction is different than for a non-specified one, because the deduction itself is being reduced. Salary should be set on reasonable-compensation grounds first, with the QBI effect evaluated afterward.